Emirates College of Technology Yer TCHACARD (2x4-Marks Group Work # (2) Question (1): Consider the following facts provided for ALFA Corporation: Bank Debt information: - rd. Interest rate on bank loans 12 % - T: Annual Tax rate 20% - - Preferred stock information: D : Annual Dividends on preferred stock $ 15 P: Issuing price of ALFA Corporation preferred Stock $ 120 FC: Flotation cost on issue of preferred stock/per share $ 3 Common Stock information: - Rp! Market risk Free Rate 6% - RP: Expected Market Risk Premium 4 % - b: ALFA stocks beta coefficient index of the stocks risk) 1.0 >> ALAFACorporation plans to get new fund for a new project; the project financing will be allocated according to the following capital structure: Weight of Debt Wa: 40% Weight of Preferred Stock W : 40% Weight of Common Stock W: 20% Required: a. Calculate the cost of debt. b. Calculate the cost of preferred stock. c. Calculate the cost of common stock. d. Calculate the weighted average cost of capital (WACC 1). 186 2011 Emirates College of Technology we Prepare for Future Ju s t Revision Date 25/06/2018 Group Work # (2) For No T/ACATO104 Question (2): (2 Marks) Assume that the capital structure of ALFA Corporation is modified as the following table; calculate the new weighted average cost of capital (WACC 2) for ALFA Corporation & analyze the result. Capital structure (2) Weight of Debt Weight of Preferred Stock Weight of Common Stock W . -20% Wp=10% W, -70%